Digital Technologies Will Soon Add $1 Trillion-Plus To Global Economy

Forbes

The increased use of digital technologies could add $1.36 trillion to total global economic output in 2020, according to a recent study by Accenture and Oxford Economics. This may be only a fraction of a percent of the total global gross world product (currently sized at about $87 trillion), but it’s a substantial contribution to growth. To put it in perspective, moving forward full-force with digital would add an economy the size of South Korea to the global market (current GDP at $1.3 trillion).

The growth spurred by digital will occur across all countries and regions, and contribute even greater gains in emerging markets. Accenture and Oxford calculate a 10-point improvement in digital density (on a 100-point scale) over five years would lift GDP growth rates in advanced economies by 0.25 percentage points, and by 0.5 percentage point in emerging economies. The United States alone would see a GDP uplift of at least $365 billion in 2020. Emerging economies, such as Brazil, India and China could see rises of between $97 billion and $418 billion.

Accenture and Oxford define digital through a variety of initiatives, including the volume of transactions conducted online, the use of cloud or other technologies to streamline processes, the pervasiveness of technology skills in a company, or an economy’s acceptance of new digitally driven business models. Going digital means organizations place “digital at the heart of their strategy and enterprise to transform every part of their operations, including R&D, supply chains, and the use of cloud, analytics and CRM technologies.”

What this tells us is the digital phenomenon has legs, and promises to deliver real gains to companies and countries alike, beyond the hype and buzz. Digital engagements are delivering value on several levels. Here is the progression of changes digital promises to deliver:

• Increased efficiency and energy savings, as manual, duplicated or calcified processes are replaced with software-defined and analytics-driven processes.
• Increased market responsiveness, with businesses able to respond to consumer demand through social media, and anticipate future trends through analytics.
• Higher levels of collaboration, as members of organizations are able to work together and share information with each other almost instantaneously, as well as with customers.
• Greater innovation, as businesses have greater access to pools of knowledge and resources outside their walls.
• More entrepreneurial energy and opportunity, as teams or individuals are able to take advantage of an abundance of cloud and social media resources to launch new businesses or business lines with minimal startup capital required.

What’s key about digital is that it is far more than simply automating and optimizing processes — which is merely the first step. In its ultimate form, the digital economy means upending older, established and calcified business models. For example, Uber is simply an app company that brokers multiple resources across a network; it owns no vehicles and does not directly hire and pay drivers as a cab or limousine company would. Expect to see many Ubers emerge across various industries. And, importantly, there’s no reason why existing companies can’t employ digital to spur similar disruptions within their own sectors.

Organizations have to be ready for — and embracing of — digital disruption, of course. And many aren’t. They may have corporate cultures that don’t reward, or even discourage, innovative behavior. They may have issues with going to their shareholders to state that they are throwing away established high-margin business lines to adopt lower-margin digital business models. They may find it difficult to re-imagine themselves as digital, softtware-centric and data-centric enterprises. They may also have skills issues with finding or competing for the talent that can help them make the move to digital. They may not have an IT infrastructure capable of handling huge quantities of data.

While the Accenture-Oxford report is quite optimistic, it’s notable that it qualifies these numbers with the word “could” — as in, “increased use of digital technology could add as much as US$1.36 trillion.” What’s at issue? A lack of collaboration between business and government may hold back these potential gains, the report states. Accenture and Oxford urge governments not to get in the way, but to encourage digital entrepreneurship, as well as providing help with innovation and skills training. “Although infrastructure, such as super-broadband and mobile broadband remain important to digital growth, governments should also focus on making it easier for entrepreneurs to use digital technologies to launch businesses, streamlining the regulatory environment, finding innovative ways to create the right skills in the workforce, and supporting trust and confidence in citizens and business.”

What’s telling about Accenture and Oxford’s analysis is the acknowledgement that looking at digital as just another IT tool will not take things far enough. As the report’s authors observe, organizations need to transform their operations to compete in digital environments, rather than “simply automating key business processes to boost efficiency and productivity.” That’s where most of that additional $1.4 trillion will come from.